Flippers “Adopt Buy And Hold Strategy” In California
The Sacramento Bee reports from California. “After weathering one of their toughest periods in a decade, Sacramento-area home builders closed 2006 with a bang, boosting year-over-year quarterly sales of new homes for the first time since 2004 with steep price cuts and giveaways that often totaled as much as $150,000 per house.”
“But even as builders celebrate a strong finish, 2006 still saw the fewest new home sales since 1998 in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties. Builders sold 9,588 single-family homes and condominiums during the year,- 4,500 fewer than in 2005.”
“Placer County showed the quarter’s biggest year-over-year sales gains as builders cut prices and offered huge incentives at large master-planned communities in Lincoln, Roseville and Rocklin. In Roseville, for example, fourth-quarter sales prices fell 11.3 percent from the same time in 2005.”
“In contrast, Sutter and Yuba counties saw the region’s biggest fourth-quarter declines in sales. Both felt the brunt of builder price cuts and incentives in Sacramento’s urban core, Paquin said. ‘If Lincoln and Natomas and West Sacramento are responding with appropriate pricing levels, buyers are going to go there instead of further out,’ said Gregory Group President Greg Paquin.”
“Barry Grant, Sacramento-based president of KB Home’s North Bay territory, acknowledged the tougher sales climate in Sutter and Yuba counties. ‘You have to price aggressively there to make it a compelling deal for the buyers,’ he said.”
“Construction has stopped on downtown Sacramento’s most ambitious development project ever, two 53-story condominium and hotel towers planned for the foot of Capitol Mall.”
“In a sign of developer John Saca’s ongoing financial struggle to build his skyscrapers, several contractors filed liens against him in the past week for unpaid bills totaling $7.3 million for such items as architectural work and pile driving.”
“Eric Rasmusson, a spokesman for Saca, called the work stoppage ‘a short temporary regroup’ while the developer tries to reconstruct a workable budget and secure his construction financing.”
“‘We want them to follow through with their commitment and their investment on that site,’ said said John Dangberg, the city’s assistant city manager for economic development. ‘This is a very important project to the city of Sacramento, particularly since a building has been torn down and there are piles in the ground. We want it to proceed, and we think it will proceed. We’re not interested in having a hole at the gateway to the Capitol Mall.’”
The Orange County Register. “Production in California’s manufacturing sector declined in the fourth quarter, according to a survey of purchasing managers by Chapman University that was released Thursday.”
“The survey’s production index fell to 47.5 in the fourth quarter from 63.6 in the third quarter. A reading under 50 indicates a contraction. It’s the first time production has fallen since the survey began in 2002, Chapman said.”
“Raymond Sfeir, a professor of economics at Chapman, said the drop was tied to a decrease in housing construction in California. Manufacturing of wood products, furniture and metal products were hurt, he said.”
The Daily Breeze. “House flipping in California last year declined to its lowest level since 2003 as speculators retreated from a market in which sales plunged and prices flattened, a market tracker said Thursday. Homes owned for six months or less accounted for just 3.2 percent of resales last year, down from 4.2 percent in 2005 and 3.6 percent in 2004.”
“‘What’s happened now is the flipping activity is just reflective of today’s real estate climate,’ said Steve Morgan, the company’s VP. ‘Investors, if they can, have adopted a buy and hold strategy until prices come back up.’”
“And if prices don’t start rising, some owners will be forced to sell and cut their losses, he said.”
“Speculative buying and selling of homes contributes to market volatility and risk, all part of that bubble theory people were talking about. Lending institutions measure risk and volatility, homeowners and buyers would also do well to keep an eye on them in addition to watching the ups and downs of their local prices and sales,’ Mike Ela, the company’s president, said.”
“When factoring in commissions and costs, 24.9 percent of the last year’s flip sales resulted in a loss for the seller, the highest percentage since 25.2 percent during 2002. If there were improvement costs, profit would be lower.”
“As the market has cooled off, particularly in terms of prices, the investors have become increasingly wary about buying investment homes,” said Nima Nattagh, an independent market analyst.
The Press Enterprise. “The California community with the greatest amount of flipping as a percentage of sales was Corona at 12.9 percent. San Jacinto came in third at 12.2 percent, trailing Playa Vista at 12.3 percent.”
“Bruce Norris, president of a Riverside-based real estate investment company, said flipping homes for profit is much riskier now than a year ago and requires more knowledge and research. ‘You have to buy at a greater discount to make sure you realize a profit,’ Norris said.”
“He predicted that over the next five years, more of the prime properties for flipping will be lender-owned properties in foreclosure, as households who bought homes with adjustable-rate mortgages can no longer afford their mortgage payments.”
’steep price cuts and giveaways that often totaled as much as $150,000 per house.’ Builders sold 9,588 single-family homes and condominiums during the year,- 4,500 fewer than in 2005.’
Of course this means there are 15,000 houses that are underwater already.
‘In contrast, Sutter and Yuba counties saw the region’s biggest fourth-quarter declines in sales. Both felt the brunt of builder price cuts and incentives in Sacramento’s urban core, Paquin said. ‘If Lincoln and Natomas and West Sacramento are responding with appropriate pricing levels, buyers are going to go there instead of further out,’ said Gregory Group President Greg Paquin.’
IMO, this is just stealing buyers from other areas, not really increasing the number of buyers. And the resale market must be shot in this environment.
‘A local real estate company on Tuesday announced its affiliation with the real estate arm of the famed Sotheby’s auction house. Ryan & Johns Professional Real Estate Services Inc. of Bakersfield becomes the eighth Sotheby’s International Realty affiliate in the state and 75th in the nation since the company began adding affiliates three years ago.’
‘They say the affiliation will give them increased exposure to higher-end clients through Sotheby’s marketing efforts and listings on its Web site. ‘You’re talking about reaching some of the wealthiest people in the world,’ Ryan said.’
‘Affiliate offices are located in such swanky areas as Palm Beach, Fla., The Hamptons, New York, Santa Barbara and Beverly Hills. While the city is less glamorous than some other locations, the company said Bakersfield is an attractive market. Sissy Johns, co-owner of the local agency, said the firm’s 15 agents don’t try to be everything to everyone. ‘We’re very sleek, we’re very low key,’ Johns said. ‘We’re very less-is-more.’
Here are some adverbs and adjectives that apply : inverted prices, neg appreciation,downturn,fall, pause, plateau, breather, interval, lull, break, gap,plunge, dive, flatten, cooling, bailout, and plummet. I have another 50 words that have been used by L.A.Y. and Lereah which would apply but you get the picture ? Don’t you? Except Gary Watts and the other REIC Pollyannas.
WELL NOT FOR LONG… Read this. Quite amusing.
WASHINGTON (Reuters) — Average interest rates on 30-year mortgages crept upward in the latest week to 6.21% from 6.18%, according to a survey by finance company Freddie Mac on Thursday.
Rates on 15-year mortgage rates also rose, to 5.96% from 5.94%. And one-year adjustable rate mortgages averaged 5.44% compared to 5.42%.
A year ago, 30-year mortgages averaged 6.15%, 15-year mortgages 5.71%, and the one-year ARM 5.15%.
Even with the slight increase, Freddie Mac expects rates on 30-year mortgages to stay below 6.5% throughout 2007, said Frank Nothaft, Freddie Mac vice president and chief economist, in a statement.
It also expects home buyers to borrow fewer adjustable rate mortgages this year.
“The gain in employment in December exceeded the consensus forecast, and helped ease fears about the state of the economy. But stronger employment and higher wages put upward pressure on inflation, which, in turn, translates into higher interest rates,” Nothaft said.
Last week the Labor Department reported the United States added an unexpectedly large 167,000 non-farm jobs in December and average hourly earnings rose by 0.5% that month.
Freddie Mac said lenders charged an average of 0.4% in fees and points on 30- and 15-year mortgages, both unchanged from last week. They charged 0.5% on the one-year ARM, down from last week’s 0.6%.
The “5/1″ ARM, set at a fixed rate for five years and adjustable each following year, inched upward to 6.03% from 6.02%. Fees and points charged on the hybrid mortgage averaged 0.4%, the same as last week.
Freddie Mac is a mortgage finance company chartered by Congress that buys mortgages from lenders and packages them into securities to sell to investors or to hold in its own portfolio.
Copyright 2007 Reuters Limited. Click for Restrictions.
Today one of my friends got an unsoliceted offer from citifinancial to do loan modification and fix his adjustable rate at no cost. This got me thinking. Just because rates are adjustable do they have to reset just because they can. They know by now that reset all these loans is the equivalent of detonanting the bomb.
BUY AND FOLD.
if Citifinancial is willing to re-write toxic loans notes ,than it shows they are trying to avoid foreclosures . It could save a number of borrowers from foreclosure .To get a loan modification both borrower and lender would have to agree and sign a new contract .In terms of a smart move on the part of a lender to avoid foreclosures , I think it is .
…time2fold.
Hold and Choke Strategy!
“Subprime reasoning”
Sotheby’s in bakersfield? You have got to be kidding. The day the world’s wealthiest want to buy in Bakersfield is the day when pigs will fly. Truly, the crap coming from the REIC just gets crazier with each new day. Just when you think you’d seen it all. No doubt it was the local agent that paid for this affiliation because I cannot imagine Sotheby’s sinking a dime into that pit.
Maybe they are preparing for the explosion of auctions for repos? Bakersfield should have plenty.
You could be right. I wouldn’t be surprised if they wind up with David Crisp’s $500K Mercedes. Anyone hear news on him lately?
Jewelry, Fine Bass Boats and Harleys, Motorhomes, Silverware, Electronics, etc. Positioning themselves as “upscale” pawnbrokers.
Don’t forget them Duallys. Plenty of those rednecks in Bakersfield.
You don’t know what your talking about. Can’t you read? Bakersfield is “very sleek and low key”, “less is more” in Bakersfield.
It’s a lot like Beverly Hills, only without the “Hills” and no “Beverly’s”….. and more cow pies. But them pies “bake” fast. Especially in the summer.
Gotta have that summer if your going to grow cotton and grapes.
Too bad they traded salmon for it. The San Joaquin River had a decent salmon run until the 1940s.
Too bad they traded salmon for it. The San Joaquin River had a decent salmon run until the 1940s.
How fortunate for the bay area the NRDC and Bay institute won that lawsuit. Now it’s just a matter of time before your forking over $8 per pound for your tomatos
Please…..the whole California cotton (& rice) industry runs off of water from projects that should have never been built. It’s an economic joke.
It’s a newly genetically modified pig created with easy money. Mosanto recently received a patent for a rose flying pig.
Comment by CA Guy
2007-01-12 11:30:25
Sotheby’s in bakersfield? You have got to be kidding. The day the world’s wealthiest want to buy in Bakersfield is the day when pigs will fly.
you forgot to add…. out my butt. ;-D
It should read: The day the world’s wealthiest want to buy in Bakersfield is the day when pigs will fly out my butt.
Thank you! That truly makes the scenario complete. Wayne’s World? Excellent!
’steep price cuts and giveaways that often totaled as much as $150,000 per house.’ Builders sold 9,588 single-family homes and condominiums during the year,- 4,500 fewer than in 2005.’
Of course this means there are 15,000 houses that are underwater already.
I wonder if these people believe they have equity? Until there is a resale to obliterate the comps, they must maintain the delusion they are not drowning because the builders are maintaining an artificial comp market.
posted “Flippers “Adopt Buy And Hold Strategy” In California”
An old Wall Street saying goes something like this a burnt speculator, is an investor”
How about that Yahoo shareholder who bought at $350 a share and cant afford to sell. LOL! This is read
Long Term Investor (multi-generational)
An investment is a trade gone wrong.
Buy, hold and hang.
Just got back from the Hollywood Hills quoting a demo and landscaping job and every 4th house is for sale.And i just got off the phone with the Zip Realty lady and she said its real slow in the AV.Bubble has definately popped in LA.
Sounds worse than the SF Bay Area. Thought LA was doing better.
front page of youhoo has bubble proof !
markets
like sf and yaydyyaydyay
$1000 Google. You know it is coming. This isn’t 1999…tech stocks really can ONLY go up. At least, that is the way the stock markets have been behaving recently.
Is it just me or does it feel like investors on Wall Street are trying to squeeze out some upside while 2007 outlook appears rosy to most.
I can’t help but have the feeling the rug is going to be pulled out from this NYSE record high, ala 1987, once the housing bubble does not go away this spring and earnings begin to disappoint…
Delusional. Absolutely delusional.
“Ah, Violet, I’m so very tired of the Derbyshire countryside, and Paris is so dreary this time of year….”
“I know what, Dickey! Let’s purchase a sleek little low-key pied a terre in….Bakersfield!”
Pied-a-terre has a special meaning in Bakersfield. It loosely translates to ” Earth Pie” or “Pie of Cow.”
By the way, if you live in BF, I’m just kidding. I love the southern Sierra
I aways say….”Bakersfield is 2 hours away from thousands of places I would rather be”.
Its a great central location and very close to a lot of great stuff. To bad its such a horrible town.
We live in Lake Isabella and Bakersfield is the closest big city. I dread having to go down there.
Growing up as I did in Porterville,I used to hate B’field too. But I would have to say Fresno has eclipsed it as the armpit of California.
But I must say my little brother lives in B’field and loves it. Go figure.
Bakersfield is an attractive market ? Maybe due to the decline of Crisp & Cole?
LMAO!!!
“less glamorous” as Baltic Ave. is less glamorous than Park Place
“While the city is less glamorous than some other locations, the company said Bakersfield is an attractive market.”
Clearly this man has never been to Bakersfield or is a worthless lying… (more likely).
Forget all this negative talk, a Yahoo headline just told me that San Francisco, LA, Seattle, Boston, and New York are bubble-proof!
http://promo.realestate.yahoo.com/
I saw that. You beat to posting it. What do you expect from one of Trump’s cheerleaders. The article is complete BS.
This is a repeat from some Business 2.0 article published a while ago. Basically one of Trump’s bimbos read it and commented, which I guess qualifies as news.
Yeah, but this tired retread of a story makes it really sound like someone is circling the wagons. Too bad strategies of static defense, military or financial, rarely work.
The Alamo, Yorktown, the Maginot Line, Dien Bien Phu…
On the other hand, there’s also the odd Rorke’s Drift here and there, but I see your point.
I seem to remember Trump’s RE apprentice on Fox saying there was no RE bubble anywhere. They are moderating now?
They have a new show out, that’s why.
I wiki’ed this bimbo and she “won” in May 2005. I guess it was very fitting that they peak a RE Whore at the bubble peak. She is based in FL no less, so I am sure that her business is bleeding….. But maybe she can rectify that by buying some bubbleproof property in Boston?
Calling anyplace “Bubble Proof” is reckless. She obviously hasn’t lived through a real estate recession. Here’s the big reason for her “blind enthusiasm”, the usual cause, “blind ambition”…
Her book:
Risk & Grow Rich, How to Make Millions in Real Estate
Here’s a link to that story they’re referring to:
http://money.cnn.com/popups/2006/biz2/newrules_bubbleproof/index.html
San Francisco, if bubble proof, has only appreciated by a 4.9% annual average since 1949. LA by 3.7%, Seattle by 3.2%, Boston by 3.0% and NYC by 3.0%.
If Boston is bubble proof then how come I lost 25% when I had to sell my condo in 1993?
I know very few people read full article. here is what is at the end
Keep in mind, however, that while some markets are bubble-proof — I define this as being unlikely to experience a decline in prices of more than 5 percent in a single year — no market is change-proof
so bubble proof is it wont decline more that 5 % in a year. dont ask me why. But also it means it could decline 4.9 % every year for next ten years
and this
The real estate market is fluid, and no boom lasts forever.
from the money.com article…
“Income trends and development restrictions have made each of these top cities safe bets for investors.”
SF? Hold on there folks! what restrictions and when?
As anyone can plainly see that is not the case. There is plenty being put up now. If anything! we are in a non-resticted era! I sure dont see or recall restrictions in the past both political or natural. Have we forgotten that half of the SF Financial District is built on water.
As for income. The Bay Area has volitile economy thats shifts fast from boom to bust. Few companies actually survive over decades. Far too many 90-95% of employers from 1980’s did NOT make it into the 1990’s.
Anyone that worked in silicon valley in the 1980s and 1990s would tell you of the paranoia amoung workers regarding being laid off.
As history in SF bay area has always told as as prices increase more jobs will be shifted elsewhere. We are talking everything from Wells Fargo to Intel. Its a deflationary economy.
I dont see this safe-bet here as the article states.
Actually, the city of San Francisco itself is full of restrictions. There are laws as to how high you can build in certain areas downtown (so the wealthy Nob Hillers don’t get their views blocked).
To get a new development approved in certain areas, the city will demand that a large proportion of the units be below market to keep rents down, which in turn makes the project unprofitable for developers.
Trying to tear down an old building/house to build something new is torture - you’ll be waiting years for the city to approve the permits. Similarly, several buildings are protected under historical statutes and cannot be modified signifcantly.
The largest land owner within the city is the Federal Government - so forget about building in the Presidio or Fort Mason, two large land tracts in prime locations.
Finally, any developer that plans to build something always runs into numerous protests from NIMBY morons who think San Francisco is a museum, and can’t accept any kind of change.
Maybe it’s different in other parts of the Bay area, but building here is not that easy.
At the end she says that -5% per year is “bubble proof”. Ha-ha. With this definition the Japanese market nearly qualifies. I haven’t looked closely but that’s pretty much how it dropped over 15 years.
Yes, Tokyo has been “Bubble Proof” for over a decade now. I’m sure all them broke bag holders over there will be “overjoyed” to know this.
I meant to say dropped
Well it works with the morons. It’s sufficient. And morons are much more important to the system than intelligent people. “C’est la vie.”
Who would want an intelligent cog anyway..
Epsilons for everybody!
She’s less than 30 years old… not enough experience to really be commentating like this I think.
But BS is an american speciality. I must admit watching Trump, I know what I don’t like from United States sometimes. Mister Trump has a phophetic name. He is full of sh-t…..
Im usually pro-business but this is the biggest load of crap.
If really fumes me to see this garbage. Apprentice crap is the worst example of business you can show. I hate to think many who will go into major business will feel this is the norm and they must act like this. God help us!
This K Todd is a complete airhead! She dosen’t know Sh** about the LA RE Market, and neither does Business 2.0 magazine. Prices in many hi-priced LA zips have receded 10-15% yoy from their mid 2005 highs. The Condo market is showing signs of a real plunge in prices. The LA Market is in a deep freeze right now-sellers not budging, buyers not buying. All those inner LA slumzones where prices were catapulted by toxic-subprime loans to otherwise unqualified buyers will take a plunge as soon as lenders pull the rug from making stupid inner-city loans to marginal borrowers. The LA coastal zips are all overrated and overpriced, and their owners and would-be sellers are simply sitting on what they think are permanent 300 %+ ‘paper’ equity gains. Santa Barbara, one of the most attractive coastal regions in Scal, has fallen -20% yoy, so what makes such cities as Mahhatten Beach, Santa Monica. Venice, Brentwood,Marina Del rey,pacific palisades supposedly immune from yoy declines of 10-30% or more.
Does anyone think that a relatively small % of megavillas in the hollywood hills/bel aire priced at 10-30 million dollars will keep the entire LA metro RE prices from falling? 95 % of LA SFH stock is a 50-60 yr old plain jane 3/1 or 2 stucco on a 5-6000 lot in some aging declining LA burg, and 50% of LA metro region already a third-world immigrant craphole.
I Can find no evidence that LA is attracting A lot of new corporations, except for some immigrant sweatshops and factories setting up in the alameda corridor.
She should inform my neighbor, who just cut his price 20%, that Boston is “bubbleproof”.
Oh, and my neighbor will have to cut another 15% (at least) to sell.
LOL! Land Lock San Francisco ? — and how much new construction have we seen go up in city. Tons and Tons more to come…. Not much went up in the prior ten years.
Every realtor for the past 20-30 years has been saying SF Bay Area is land lock … where is all this contruction coming from?
Lying damed realtors.
Is there anyway you can b*tch slap this person… what a load of crap!
Louie,
Indeed. Just the other day we had an article on the 3-4K luxury condos that will be coming online in ‘07, and there are more to be completed in ‘08. Not to mention that others have gotten large condo complexes approved very recently. Sure, SF can’t build a bunch of McMansions, but they can go up just like any large city. Right by the bay bridge we have Watermark, One Rincon, and Infinity. There will be a glut if nothing else. I second the call for a b*tch slap!
wow 35% that’s 90’s action for NE
more down this time ?
“The five markets cited by Business 2.0 are rich cities”
WTF! LA a rich city? This Bimbo only sees LA through the eyes of entertainment weekly or the LA times RE section which focus only on the lives and homes of the rich and famous. LA has that, but LA also has some of the grimiest rotten ghettos and slums in America. Maybe 50 of LA counties 170 zips are third-world slums. At least 1/3 of SFV(eastern part)is officially a declining area of aging burgs and apt slums, with exploding gang crime. Dwtn LA is one gigantic concrete bunker zone, unfit for habitation.
East LA, scentral,710 alameda corridor cities, 605 fwy corridor cities, Long beach, all have large portions which are immigrant/home-grown ghetto slums. Sbay in overrated, with a very thin mile-wide sliver of overpriced beach condos-SFH’s on 2000 sqst mini-lots crammed and stacked together like plied boxes in a storage shed.
In fact LA county is the most overrated bubble region of them all, which stems from the hollywood media hype which puts a glamourous glitz over the LA show-biz scene, as if this is typical LA. In reality LA is a rather dismal metro region of nasty traffic clogs, smog, gang activity, occasional riots, third-world barrios, grimy sweatshop zones,depressed declining aging factories and infrastructures, graffiti all over the place,and constant non-stop truck/auto traffic day and night. There is constant activity and a restless roving population on the roads and fwys, but as far as livablily LA would rank dead last on any scale. A rich city my *ss!
More darts to throw at k Todd and the geniuses at Bus 2.0 referencing LA as a ‘bubble-proof rich region’
http://www.latimes.com/news/local/la-me-gangs10jan10,0,6060324.story?coll=la-home-headlines
“L.A. officials are trying to quell a 14% increase in gang-related crime during the last year, marked by several high-profile incidents of race-motivated violence……
Police have identified 720 street gangs in Los Angeles, with 39,315 members, including the 204th Street gang in the Harbor Gateway, and Canoga Park Alabama, a relatively small gang that police say is responsible for a disproportionate amount of violence in the Valley, where gang crime was up nearly 40%….The San Fernando Valley has seen a real spike in gang crime,” Cooley said…….The LAPD has targeted such gang-havens as an apartment complex at 69th and Main streets, which he said was home to the East Coast Crips gang”
Yes folks, LA is a rich, bubble-proof city, cause K todd and bus 2.0 told you so! I guess the proliferation of LA gang activity should’nt affect RE values in the city of angels.
We’re not interested in having a hole at the gateway to the Capitol Mall.’”
I remember in 1991 the exact same thing happened in Sacramento. One day we were house framers, the next day work just stopped. Acres of half framed houses, kind of spooky.
Then you must forget the early 80’s, where a 15 story condo tower was built, only 8 sold as condos, the rest to an investor who rented them out. Somebody then bought the place, kicked the tenants out, and is remodeling with granite, stainless steel, etc. to sell them as ‘affordable’ luxury condos.
$600K for a 3/2 1400 sq.ft. place.
Yahoo!!!!! Luxury graveyard condo. Eventually they will have to cut the selling price by half.
San Luis Obispo had a hole int he ground from 1991 through the mid 90’s. I know it was only 20-30 feet down… and only half a block… but it was boraded up on each side and was downtown. Eventually, the Copelands (from Copeland Sporting Goods) did a very nice project there that included a movie theatre, Starbucks, Barnes&Nobles, and some chain clothing stores. It was nice. It is still nice.
how long can the average flipper hold a cash burning asset?
their margins are small to begin with and the air coming out of these prices will not help
buy and foreclose or walk away is more like it
That’s a very good question.
I know I’m not answering your question specifically, but some flippers will not be able to hold past the next month, and another group the following month, etc.
The more flippers go into foreclosure, the more inventories rise, the harder it is for the remaining flippers to get out. This will continue until the only flippers left are those that can hold on indefinitely (either through continuing to feed the property with other income, or with positive cash flow from rents).
I suspect some flippers will be able to hold on for a few years.
“I suspect some flippers will be able to hold on for a few years.”
I doubt it. Why would they, as they see their ass(et) decline month after month, as they feed it $$$$. Worse yet if there are many alligators all taking food out of the FB’s mouth. They will get discouraged quickly and throw in the towel. That’s basically what happened on the NASD as the declines continued. Investors (speculators) realized the upside wasn’t there and took their tax-loss…
I don’t know about that. I suspect many will refi out the equity while they still can and use the equity for debt service. After all, they’ve earned it.
Yes, it’s insane, but as long as lenders are willing to lend against the “equity,” what are ya gonna do?
I doubt many flips have any equity at all. By definition a flip
Just because they shouldn’t hold on doesn’t mean they won’t.
People do illogical financial things all the time, and the avoidance of losing money on an investment is an underestimated psychological driver.
Lets see some math here… 450K/2% loan in LA is about 2200$ per month… prices are falling back tword 2004/2003. 25K per year holding cost… not too horrible.
A lot of places sold at that 450K mark… nothing stops it from sliding well under that. The few buyers out there will be further away from the less marketable places.
Rent it out for 1800$ a month and take associated write offs till you get pressed by the ARM jump.
That sounds pretty likely.
Check out some of their blogs where they try to impress each other with their BS. They use the acronym OPM, Other Peoples Money. Pretty much sums it up, they reap the profit if prices go up, if they lose money it’s not their problem. What they don’t realize is that things changed with the new bankruptcy laws….. Would be fun to watch one of these guys when he thinks it’s time to walk away from his investments and his lawyer explains what the reality is.
Can they force a short sale and then make the borrower pay the difference?
Seems like if that they can get stuck that bad then, if they have the income, the bank can go after it.
Owchie
It’s called a vicious circle.
‘a short temporary regroup’
- yeah, like about a 15 short year regroup.
“‘What’s happened now is the flipping activity is just reflective of today’s real estate climate,’ said Steve Morgan, the company’s VP. ‘Investors, if they can, have adopted a buy and hold strategy until prices come back up.’”
More like a “buy and fold” strategy.
When these “buy and hold” flippers capitulate, we will be close to the bottom.
Maybe not. Flippers will be far more inclined to toss the keys than actual owner-occupieds. Owners will fight harder to keep their family’s home. When the FB owner capitulation gains serious traction is when we approach the bottom.
I am convinced it’ll be the velocity of new REOs that determines when we see leveling off…
Yea, you are probably right.
The “Bought and Got Rolled” strategy.
“‘What’s happened now is the flipping activity is just reflective of today’s real estate climate,’ said Steve Morgan, the company’s VP. ‘Investors, if they can, have adopted a buy and hold strategy until prices come back up.’ And if prices don’t start rising, some owners will be forced to sell and cut their losses, he said.”
Buy-and-hold doesn’t mix very well with falling prices and subprime rot.
What a dipshit this Morgan guy is. An experienced, intelligent investor would have bought only at a price that produced monthly cash flow from day one. All the others he refers to? Speculators/idiots that are going to learn this the hard way when the old-timers, and maybe some from this blog, swoop in and pick up their POS at fire sale prices.
No need for old models like Cash Flow or Free Cash Flow analysis. Hey it’s the stuff old geessers and stuffy boring billionnaires like Warren Buffett use constantly. It’s different this time. Cash Flow wasn’t used for the junk and garbage internet and new e-CON-omy stocks. It’s the same bunch of
f–cked up morons and scuumbags that bought real estate. It’s soo evident, that’s all this stuff just kills me it’s soo funny.
A year from now it will be instead: “Buy and fold.”
compound their losses by holding
yes, I do not understand this strategy - unless they plan on holding for 10 years, that is…
After adjusting for inflation (not to mention holding costs), it’s quite possible that prices will NEVER again rise high enough for them to break even, let alone break even after accounting for opportunity cost.
They are expecting Ben Bernanké’s Helicopter and his barrels of “free” money from the FED. Helicopter Ben and the FED to the rescue again.
Sacramento Mortgage Fraud Update: 1/12/07
Hillwood Loop (with about 70 homes on the street) at the JTS Estates at Lincoln Crossing (Sacramento MSA) just had the 5th home sink into foreclosure yesterday (home #4 is photo #4 on Ben’s photo gallery, above). The average loan balance for the foreclosures is about $630,000. This is even made more curious, as the sub prime lenders have been enticed to loan 100% (80/20) on 8 purchase transactions in the last 60 days . The average loan amount: $774,000.
The lenders are being defrauded for over $200,000/home. The lenders are working on bringing the borrowers to justice, but are overwhelmed with the amount of mortgage fraud across the nation. Some have had to put their investigations on hold for a week or two, pending bigger fraud and identity theft actions on even larger scales across multi national borders.
It appears 8 homes and $1,600,000 is just small potatoes in the grand scheme of mortgage fraud today.
I hope the RMBS buyers read these blogs, because they need to know this activity will result in not only lower returns on their securities, but also include likely principal erosion in their portfolios.
The builder, meanwhile, just lowered the prices of his unsold inventory to $540,000 (supposedly down from $750,000, but really down from $650,000). He is stuck with 40 homes and can’t dump them.
The arms lengths transactions (ie: non-fraud) in the last 3 months averaged about $570,000, so those buyers all just lost $30,000 in value. They keep catching the falling knife and they keep getting sliced open.
Paladin
Thank you for the update. Awesome work. Man, that region is in for a world of hurt with all those over-extended wannabe rich folks in Lincoln and Roseville. I wonder what ever happened to that guy who spent $100K on his backyard? He had a pool, bar, bbq, and TV lounge, all within plain view of his next door neighbor 10 feet away. Living the dream.
Ca Guy,
You asked me about Tri-Valley a couple of days ago, but I think the topics moved rather quickly. Here is what I posted for you (and interested parties):
Yes, I am in the Tri-Valley (Dublin) area and I’ve been watching changes occurring just like clockwork. There are new units going up right at the Dublin BART station (Elan by D. R. Horton) that I started a spreadsheet on in Feb. ‘06, and they’ve so far taken a $100k hit on several of their models. Townhouses on Central Pkwy that, in 2002, were going for $400k+ (ridiculous even THEN) rose to $670k+….now they are at $509k. That price has not budged for several months and I’m sure it’s because it would absolutely KILL the owner to admit that the POS is not worth that in this market.
A conversion at Amador Valley Blvd off Doherty (formerly Cross Creek, now Village Park or something like that) started at $440k in April ‘05, quickly rose to the high $500s ($560/570k), now the quick “zestimate” is showing at $383k).
I have a LOT more info that are real eye-openers but it’s all at home (I’m at work now). I’ll have to post on another day. But you get the drift. My prediction based on my local observations is that there are going to be a LOT of unhappy people around here before the fat lady sings. 2007 will be bad.
********************************
There is more but I thought this was enough to digest at one time.
BayQT~
Keep up the great work, Paladin! I love reading about this stuff!
On a related note, how do we as individuals report suspicious mortgage activity? There’s a unit from my old neighborhood in San Diego that just sold for $50k more than the most recent comp (the unit 2 doors down, one month prior) and $25k more than we sold ours for a year ago. It just doesn’t add up. Is there anyone anywhere who can just take a look at it and see if it seems kosher?
I can do it Sat and leave the results in the Bits Bucket for Sat. Leave me the address and I will get you the info.
Done and done. Thank you for doing this…
The address is 1711 Pepper Drive, El Cajon 92021
The comps are 1719 and 1709.
Paladin:
love your stuff. Curious, how do you find out all this information on Hillwood Loop, eg, how many homes are for sales, how many are in foreclosure, etc. Yes, I too want to want follow this train wreck from the million dollar home (now!) that I rent for 2k a month.
Paladin,
Never got a chance to say thanks for looking up that house in Calabasas. I know its a scam sale just from looking at the numbers. Blows my mind that the lenders don’t even care to do enough due diligence to sniff out the insanely obvious over market sales. I am sure one day they will wake up and “care”.
Do you think that day is drawing nearer based on the kind of responses you’re getting to your investigations?
Thanks for all your efforts!
This is the ultimate Ponzi scheme. Imagine you have 8 properties like this and you and you partner in crime keep selling them to each other for $200k more each time. The first property you actually put down real $200k for in down payment, that gives you the $200k overvalued comp(s) that the appraiser can use as CYA for the appraisal of the other 7. Then you buy the rest at the same price with 100% financing: expense: $200k, profit $1400k. Not bad, especially since you could do it 2-3 times. I guess you’d have to the US or get a new identity once the last transaction is done…..
Laddering. Folks have tried to convince me this doesn’t happen in the stock market (illegal and all) but I’m sure that it would be a pretty easy scam. Especially if you had multiple specialists in on the action.
In real estate you would just get that nice homeless man to sign his name to all of those houses and off to Brazil you go!
Brilliant! When do we start ?
Paladin,
I had written you a week or so ago about probable fraud in my neighborhood. Here is a list of the properties you requested:
$585,000 sold 11-14-06 49454 Wayne St, Indio CA 92201
$585,000 sold 11-29-06 49814 Wayne St, Indio CA 92201
$585,000 sold 12-6-06 48909 Heifitz Dr, Indio CA 92201
$585,000 sold 12-8-06 48877 Heifitz Dr, Indio CA 92201
Notice a trend in the selling prices? All these properties are/were owned by the same property company in town, per Riverside assessor records. I’m not sure what their game is, but this is clearly suspicious. In the first two properties listed recent comps are about $400,000 and all these houses are all cookie-cutter. The last two are a bit nicer (newer) but still are above recent comps by over $100,000. NOTHING is selling in these neighborhoods and there are at least 6 or 7 vacant houses on my block alone - flipper heaven in ‘05.
I would really like to nail these #uckers. Please assist if you are able.
Lex, You requested I research your properties on Jan. 2 in the thread titled “It’s No Surprise to See Price Cuts in California”. I carried that reply over to the Jan. 4 “Bits Bucket”, which in turn carried over to the Jan. 5 “Bits Bucket”. You created a monster! Ben has a calender on the right, just go click on the dates, go to the specific thread, use “control F” to search under Lex, or Paladin and you will get right to the responses to your inquiries.
Bottom Line? You have a great case for mortgage fraud and should report it to the FBI immediately. This is blatent and the fraudsters will go to jail. You must take action. Keep us informed. It is uncumbent upon us all to get the word out.
Paladin “Wire Paladin, San Francisco” Have Gun, Will Travel
‘Investors, if they can, have adopted a buy and hold strategy until prices come back up.’”
“And if prices don’t start rising, some owners will be forced to sell and cut their losses, he said.”
Bahahahaha. This guy talks as if this is some new “strategy” designed by the flippers. Sorry pal, but this so called “holding” is a hand that has been forced by the market. You see, there are no more buyers for their overpriced POS’s. Call their terminal ride on the mls whatever you want. Sure, they may pull the property off and put it back on once in a while. But make no mistake about it, these dimwits NEED to sell. But most of them don’t have the cash to bring to the table. For every one of them who has the resources to hold, another 20 or 30 don’t. And waiting for prices to “come back up” to a level which wasn’t real or sustainable to begin with? Yeah, good luck! Foreclosure and BK, coming right up!
This is reminescent of the tech crash. Day traders was stuck with dot.com stocks depreciating in value, thus turned them into “longterm” investments. Well… we all know the outcome of these longterm investments.
I was thinking the same thing. The worst thing you can do from a trading perspective is change your timeframe. If you take a large daytrading position and turn it into a 5 day swing trade, you simply compound the losses. House flipping is really no different. They should sell now and limit their losses.
If they only could. I really beleive even the most naive of flippers would sell now at break even or even a small loss if they could,but they cant. Thes people are looking at bringing in many cases 100k or more to the table just to get out and they dont have it.
They all eventually turned into tax loss sales…
As long as there are willing no doc/ stated income subprime lenders, there will be willing buyers. Just ask Paladin.
That’s right. The GF’s are out there, and they long for a metamorphosis into a BF with the aid of a sub-prime lender.
“He predicted that over the next five years, more of the prime properties for flipping will be lender-owned properties in foreclosure, as households who bought homes with adjustable-rate mortgages can no longer afford their mortgage payments.”
Makes no sense to me. Flippers make money in a rapidly rising price environment. If your buying foreclosures YOU are setting the new LOWER price environment.
Buying a foreclosure might be a good way to get a good deal on a house to live in but I if there’s foreclosures to buy, I think flipping will be a dead deal.
Course since this Guy’s business is to track “flipping” he may be loath to see that.
They’ll be gobbled up and pimped back out on the street as rentals once they cash flow at a much lower basis, setting the new LOWER rental rate.
That may be a knife catchers nightmare as it continues, flooding the market with rentals and driving rental rates lower and lower…
“He predicted that over the next five years, more of the prime properties for flipping will be lender-owned properties in foreclosure, as households who bought homes with adjustable-rate mortgages can no longer afford their mortgage payments.”
I don’t think we will see a sudden morphing of lenders into real estate agencies. Rather, they will dump REO quickly to get it off their books (just like in every other bust in California real estate history). The comps are toast.
Flippers “Adopt Buy And Hold Strategy” In California
Slim Pickens in “Dr. Strangelove”: Yeeeeee, hawwww!
LOL, very appropriate image.
Funny!
And When that Bomb lands it will no doubt be dead center in “RiverPark”…..
Dead center when talking about Riverpark is redundant.
I quote from The Who’s “Tommy”:
“You know where to put the cork”
Ok boys are you ready for nuckular combat?
With flippers, the appropriate name of the strategy will be “Buy and Fold”.
Kendra Todd (winner of The Apprentice season 3) lets us know that the bottom is near, or even here:
http://promo.realestate.yahoo.com/
“It appears that we have hit the low of the market’s down cycle and are slowly recovering. Median prices on resale homes nationally are down 3.6 percent from a year ago, but we should start seeing prices stabilize. As prices bottom out, the buyers who have been sitting on the bench waiting for the best deal on a home will get into the game, increasing competition and driving prices back up again, though I wouldn’t expect another boom any time soon.”
…
“Business 2.0 magazine has its own list of the top five “bubble-proof” markets — areas where annual appreciation outpaces the national average by at least 30 percent. These perennially healthy markets will come as no surprise to anyone:
San Francisco
Los Angeles
Seattle
Boston
New York”
…
“Keep in mind, however, that while some markets are bubble-proof — I define this as being unlikely to experience a decline in prices of more than 5 percent in a single year — no market is change-proof. The real estate market is fluid, and no boom lasts forever. You must always remain alert and have good information so you can weather the ups and downs that are always on the horizon.”
Please stop talking Kendra…. where are the “nude photos” the link promised?
Yeah. I want to see the ones where she is blowin’ Lereah…
No doubt they exist
More like blowin’ Trumpet.
She’s a lesbian.
Corona is the leading light in California flipping?
Something is horribly wrong in the state of Denmark, fellow travelers…
Yea, I find that hard to believe too. Most joe 6pks drink Bud Light.
LOL
In Europe Denmark, I think, is the biggest producer of pigs.
Realty Times
NAR’s Optimism Over Housing Outlook Grows
http://tinyurl.com/ykj7ne
“The chorus is growing in the chant that housing has struck bottom and will slowly rise again. A new report by the National Association of Realtors suggests rising existing home sales through 2007 and 2008 and a turn-around for new home starts by summer 2007, but homes won’t appreciate over inflation rates for the first time in decades. And that’s a little scary.”
…
““The current interest rate environment and housing inventory levels present a window of opportunity for potential buyers,” Lereah says. “
Wait they left off the end of his statement:
““The current interest rate environment and housing inventory levels present a window of opportunity for potential buyers,…. to get brutally Fu@ked Over!
““The current interest rate environment and housing inventory levels present a window of opportunity for potential buyers,” Lereah says. “
If by window you mean the next decade than I suppose DL is correct.
He is talking about a window for FBs to jump out of…
And if the window is at ground floor or in a basement ? At least jump from a penthouse condo.
Why is this subject treated like such a rare event? Yesterday I heard a broker on television say “some owners may actually lose money”. What is this “actually” part? And when did the potential for loss become so rare that it deserves a qualifier like “actually” — as if none of us can ‘actually’ believe it?
When brokers start saying that buyers could “actually” make money — the bubble will have “actually” burst.
Why, if buying was such a great idea, wouldn’t you keep your mouth shut, borrow as much as you could and buy everything you can?
Are RE “pros” net buyers or sellers at this point? How many realtors have bought a property lately? When was the last time ANY bought a property?
Show me the sales, show me the confidence, then tell me I should buy.
I know several realtors that decided to buy up properties. They aint the brightest people.
IMO, the brokers are a big part of the problem. They saw lots of their clients making big money and jumped on the band wagon. Too bad they are now a part of the GF’s and bagholders……
Kendra Todd can count the down markets on one hand. So can I: …Wait, there are seven continets??
Ask Kendra what comes into her mind when I say “1929″???
I’d like to ask David Liar and Leslie Young the same question
What happened in 1929? Truly an amazing group of nitwits!!
The Florida housing crash of 1926 is a perfect example of the potential for big crashes in margin buying speculation real estate markets . The 1926 Florida housing crash was followed by a big hurricane ,than the 1929 stock market crash followed . Where do you thing the expression ,”"Buying Swamp Land in Florida ‘, came from . Apparently alot of investors at the time in Florida would buy property sight unseen . Does that practice remind you of some of the locust today with the sub-prime margin buying ?
How strange. A whiff of history repeating itself ?
These things don’t happen today. 1929 is for the old guys.
Does anyone else besides me think these folks are a bunch of &&*#(( lying scumbags? This is currently on Yahoo’s homepage.
http://promo.realestate.yahoo.com/
And why does the Web address start with “promo.”? The links to the other featured stories start with “health.yahoo.com…etc”
BTW I would call Buffalo NY bubble proof.
Have a friend in Real Estate in California in the “Valley” part of LA works the Ventura Blvd. (Up Scale) part of the Valley.
Here is what she is reporting:
Many Realtors are going back to their old jobs. Construction and bartending. Many have not had a sale in 6 months.
It is getting harder for the deals to close. Funding is being held up. She has one deal entering 90 day into escrow.
On one of here listing she listed the condo as the lowest price condo in a certain area, when she checked later that evening there were many more listing at lower prices. Within one day she listed the condo as the lowest, by the end of the day it was no longer the lowest.
One of last years “high producer” in her office, is going to do real estate part time and look for other work during the day.
Two weeks ago I phoned a realtor to view a listing in a community that I’d always wanted to see. When she gave me her home office number, she told me that I would hear two recordings if I got voice mail: one for real estate and the other for her dog grooming business.
She sells real estate AND wipes dog’s asses… At least she is staying within her area of technical expertise.
Come on that’s not fair….
What have you got against dog ass wipers?
That is the funniest thing I ever heard.
What the real estate part ?
Dogs are nicer than humans and less stupid too.
Selling real estate is more vulgar than wiping dogs.
Phillygirl,
Just a few months ago I watched a realtor get out of her BMW at an open house across the stret and my buddy says to me “She was a dog groomer last year”.
Well now she grooms two legged animals. Come here Rintintin. Come here Lassie. Sit in my lap and lick my face. Give the paw. Give a kiss. Go fetch the house.
This lady is in Chester County, PA
The strange thing is, she never followed up to show me the place. I had to go through the owner of the condo to get an agent to assist me.
some on this board have talked about buying property further now stream, i.e. foreclosure, at the bottom, etc.
The RE market in the future,next 20 years may look very different then the post world war 2 period, due to the extensive inventory created during the past , boomer deaths/retirements, and factors which I cannot imagine.LOL.
My point is don’t count on RE to have the same growth curve since World War 2 no matter how good a deal one gets downstream it may be a turd, from a investment point of view.
I can’t speak for everyone, but I belong to the group of people who actually want to buy a house to “live in it”. I know, it’s an odd concept, but I guess I’m odd. The recent mass culture where people treated housing as investment is what caused the price inflation. Needless to say, I despise this having happened and the people that made it happen so when I do decide to buy a house I certainly won’t treat it primarily as an investment and I certainly won’t be buying 20 of them.
No, you’re mistaken as to what an investment is. An investment is an asset that produces income. A house is an investment - the income it produces is the value of the shelter it provides (rent equivalence). If an investment is risky or illiquid its yield (income (rent)/price) should be higher than for a T-bond, which is riskless.
People have not been treating houses as an investment at all - if they did they would not buy unless PITIM were cheaper than renting. Rather they have been treating houses as a lottery ticket - which is no investment.
http://biz.yahoo.com/ibd/070111/realestate.html
Puff piece on condo conversions and how no one really loses any money - from Investors’ Business Daily, which I had assumed to be above such shilling…
Oh. My. God.
That is the biggest bunch of crap yet. You’ve got to read it to believe it.
I read that stupid article as well. I wonder about that? Its untrue and everybody knows it but yet its published? Pump and dump?
What a great spin on the phenomenon of someone hoping to make a quick buck then realizing they would have to sell at a loss-”Hey, did you flip that house yet?” “Well, you know, I took a look at things, and decided instead to adopt a ‘buy and hold’ strategy.” “Nice, man”.
Reminds me of the movie Spinal Tap when the interviewer asks the lead singer “I can’t help but notice that over the course of your career, where you used to play stadiums, now you are playing much smaller venues with far fewer fans. Do you think that indicates a decline in the band’s popularity?” “No, I think it means we’re playing to a more selective audience.”
can kendra count the up markets ?
even the drilling field counties are slowing down
driller told me they’re capping in Ng for better times
WEEKEND TOPIC
how far off peak are you now ?
N VA off 12-15% w inventory on the low end moving better than 3 months ago
Condos in my hood (92127) are 25% off Su05 highs…
This “Apprentice 3″ winner has this post on Yahoo: http://promo.realestate.yahoo.com/
she needs a clue bat to the noggin.
Big Freeze coming the California’s Central Valley tonight and through the weekend. If this wipes out the orange and lemon crops for the year, look out below. One of these hit in 1991 and pratically wiped out several mostly immigrant farming communities. Hey wasn’t 1991 the begining of the most recent housing bust? hmmm…
I can visualize the upcoming E true hollywood story: ‘Kendra Todd: from Realty-whore to Crack-whore’. She might be able to get a job as a night-watchman at one of her abondoned Miami condo projects…
Speaking of Kendra, how was The Donald able to lose money by owning Atlantic City casinos? I thought that casinos were perpetual cash cows.
Mad cow diseases.
Clue bat to the noggin’. I love it….LOL
prepare to vomit
http://www.kendratodd.com/
You aren’t kidding. What a dip shit.
You are not kidding. What a dip sh.t.
Write me up!
I vote for Kendra to replace Leslie-Appleton-Young!!
Well at least she’s easier on the eyes.
Yes … they have “adopted” that idea … yes.
Much like in the near future when Casey Serin (imfacinforeclosure.com) will adopt a policy of taking it up the A$$ …
Cool.
Cow_tipping.
Buy and hold. Hold this.
OT, but when there are a bunch of transactions between a property owner and himself like this…
6/9/2006 - Resale Schmitt,Darrell to Schmitt,Darrell
3/2/2006 - Grant Deed-Resale Schmitt Darrell Trust to Schmitt,Darrell
4/21/2003 - Grant Deed-Resale Schmitt,Darrell to Schmitt,Tr
4/16/2003 - Grant Deed-Refi Schmitt,Tr to Schmitt,Darrell
3/18/2002 - Grant Deed-Resale Schmitt,D to Schmitt,Darrell Tr
4/22/1999 - $485,000 - Grant Deed-Resale Tran,Jasmin to Schmitt,Darrell
What is going on? The Original sale and the refi I get… but all the others? I see this alot… just curious…
Can’t say for certain on all of these, but it looks like the guy set up a trust, and transferred the property into the trust (3/18/02), then had to take it back out (4/16/03) in order to refi (presumably the loan was in his personal name, not the trust’s so he needed the property in his name to get the refi), then he put it back in the trust after the refi (4/21/03). Not sure about the last two transactions (although the 3/2/06 could have been another refi?). I could be wrong, but that would be my guess on these transactions.
I have seen the same thing from trusties who steal from trusts. They are stealing the equity and it is difficult to detect.
“Eric Rasmusson, a spokesman for Saca, called the work stoppage ‘a short temporary regroup’ while the developer tries to reconstruct a workable budget and secure his construction financing.”
Right…secure his construction financing…temporary regroup…. It’s over!